The stock market took off in August, but September has been a far less jubilant month for investors. Defined largely by two high-profile events — the Alibaba (BABA) IPO and the launch of Apple‘s (AAPL) new iPhone 6, the two tech giants failed to lift the broader market. Changes were also afoot with blue-chip stocks, and when it comes to October’s highest paying Dow dividend stocks, four names occupy new spots this month.
With the current S&P 500 dividend yield sitting at 1.89% and 5-year Treasury yields paying just 1.77%, the stock market remains a tempting place to put your money. For income investors looking for some potential capital appreciation to go along with a healthy yield, the Dow Jones Industrial Average is the right place to look.
The Dow offers investors 30 household names to choose from. These blue-chip stocks are as safe as they come in the equities universe, and investors seeking consistent, safe dividends can find a handful of such opportunities in the Dow. All 30 blue-chips pay dividends, but all dividends aren’t created equal.
Without further ado, here are the 10 highest-yielding stocks in the Dow, boasting payouts from 2.92% to 5.22%. (Note: All yields and returns are as of Sept. 29.)
Top Dividend Stock #10: Exxon Mobil (XOM)
Dividend Yield: 2.92%
YTD Performance: -6.69%
52-Week Return: +8.67%
Exxon (XOM) claims its spot as one of the top 10 dividend stocks for October, knocking off last month’s tenth-best Coca-Cola (KO) in the process. Exxon is down more than 5% in the last month alone, making its yield all the more attractive in the process.
Investors may be frustrated that Exxon, in a partnership with Russia’s Rosneft, struck oil in the Arctic this month. Bloomberg even claimed that “the region has the potential to become one of the world’s most important crude-producing areas.”
The only problem is, Exxon will face hurdles far more intimidating than environmentalists if it plans to drill for and market Arctic oil. Due to the ever-increasing hostility with Russia, U.S. sanctions prevent American companies from assisting with drilling projects alongside Russian firms like Rosneft.
On the bright side of things, Exxon probably wouldn’t have breached the top 10 Dow dividend stocks this month without a pullback, so the U.S.-Russia geopolitical nightmare may actually work well for ambitious dividend investors.
Top Dividend Stock #9: Merck (MRK)
Dividend Yield: 2.96%
YTD Performance: +18.7%
52-Week Return: +11.62%
New Jersey-based pharmaceutical giant Merck (MRK) retains its position as the ninth-best Dow dividend stock from last month. Like most stocks on this list, Merck has been a “Steady Eddie” with its dividend payments throughout the last decade, but Merck hasn’t demonstrated a willingness to grow that dividend as quickly as some peers.
Back in 2000, Merck shelled out $1.36 a year in the form of dividends. Fourteen years later, that number stands at $1.76 per share, or just 29% higher than it was at the turn of the century. That’s not bad, but if you’re looking for dividend growth, other companies on this list can do better.
That said, Merck is channeling its money into other worthwhile endeavors in the pursuit of growth, continuing to make big M&A moves. While earlier this year the company sold its Merck Consumer Care division to Bayer (BAYRY), September’s move was even bigger: Merck spent $17 billion to acquire Sigma-Aldrich (SIAL), a life sciences and research-heavy company that should produce significant synergies with Merck’s pharmaceutical business.
Top Dividend Stock #8: Cisco Systems (CSCO)
Dividend Yield: 3.03%
YTD Performance: +11.99%
52-Week Return: +7.67%
While Cisco Systems (CSCO) isn’t the dynamic growth stock that it once was in the ’90s, the stock now rewards shareholders with growth of a different kind. Cisco’s been steadily growing its dividend payouts for three years now, with its next quarterly stipend set to go out on Oct. 22 to stockholders on record as of Oct. 2.
Cisco investors may be encouraged by the company’s highly publicized investments in the world of cloud computing, a sexy term that sounds like a credible avenue for future growth. Unfortunately for Cisco, every modern tech behemoth with a dollar in the bank is spending on cloud infrastructure, most notably Amazon.com‘s (AMZN) Amazon Web Services. Pierre Ferragu of Bernstein Research acknowledged that AWS’s 50% annualized growth rate was intimidating, on the face of it, but that it represents around “0.1 pts of growth of total IT spending.”
Regardless of whether cloud spending remains a tiny sliver of the pie, Cisco is still investing $1 billion over two years in it, so it’d be nice to see that money put to good use and not burnt needlessly in an un-winnable war against Amazon.
Top Dividend Stock #7: Procter & Gamble (PG)
Dividend Yield: 3.04%
YTD Performance: +3.72%
52-Week Return: +9.36%
Procter & Gamble (PG), boasts an enviable track record when it comes to dividends, having paid a dividend for more than 100 years. And for each of the last 57 years the Cincinnati-based consumer goods titan has actually grown its dividend payout.
This sort of staying power and consistent dividend growth is a long-term income investor’s dream. There’s no doubt dividend investing takes patience, but the rewards can be incredible if you stick it through. And if socially responsible investing is your sort of thing, Procter & Gamble recently joined companies like Nestle, Unilever (UN), and L’Oreal in signing an international climate pledge announced at September’s U.N. General Assembly. These noble companies, and others, have agreed not to source certain materials from land that’s been illegally cleared of trees.
Procter & Gamble retains last month’s position as the seventh-best Dow dividend stock as we head into October.
Top Dividend Stock #6: General Electric (GE)
Dividend Yield: 3.46%
YTD Performance: -9.31%
52-Week Return: +5.70%
Another top-tier dividend player, General Electric (GE) has paid a dividend each quarter for more than 100 years. While GE infamously had to cut its beloved dividend in the wake of the financial crisis as GE Capital threatened the financial health of the entire company, those issues have been remedied. Currently rewarding investors to the tune of $0.22 per quarter, the quarterly dividend has more than doubled from the $0.10 rate seen in the dark days of late 2009 and early 2010.
GE investors can expect their next dividend check on Oct. 27, for shareholders on record as of Sept. 22.
While it may come off as blasphemous and wrong, GE is debating selling off its famous light bulb business. (You’ll recall that a certain Mr. Thomas Edison founded the company back in 1892.) It’s part of an effort to reinvent and reposition itself, a strategy directly influenced by the events of the Great Recession. Financials have a tendency to wilt and die in severe recessions, while diversified worldwide conglomerates the size of GE are virtually immortal — or so goes the theory.
Top Dividend Stock #5: Pfizer (PFE)
Dividend Yield: 3.49%
YTD Performance: -2.81%
52-Week Return: +3.08%
Just last month, Pfizer (PFE) stock paid the third-highest dividend in the Dow. It slipped two spots on this month’s list for a few reasons. First, Pfizer stock advanced slightly throughout the month, adding 1.3%. Second, the two stocks that leapfrogged Pfizer either raised their dividend within the past month or saw notable declines.
The major news on Pfizer this year has been the fact that it failed in its attempt to acquire the U.K.-based AstraZeneca (AZN) in May. The acquisition would have created an enormously powerful global healthcare powerhouse. Pfizer is reportedly still on the prowl, looking to make game-changing acquisitions. While the AstraZenica deal would’ve been for about $118 billion, a recent Bloomberg report indicated that Pfizer may have shifted its focus to Actavis (ACT), which at the time had a market capitalization of just under $64 billion.
Sure, Actavis would boost Pfizer’s pipeline, but the not-so-hidden additional motivation behind the deal is the tax implications: Actavis has an “Irish tax domicile,” which allows it to legally pay a substantially lower tax rate than U.S.-based companies.
Top Dividend Stock #4: McDonald’s (MCD)
Dividend Yield: 3.53%
YTD Performance: -0.83%
52-Week Return: -0.93%
McDonald’s (MCD) is one of the aforementioned stocks to leapfrog Pfizer on this month’s Dow dividend list. McDonald’s stock hit 52-week lows in September after reporting miserable same-store sales in both the U.S. and Asia, where its same-store sales cratered 14.5% in the Asia/Pacific, Middle East and Africa regions. Most of the sales slump was a reaction to reports that McDonald’s’ Asian meat supplier overlooked sanitary requirements. These allegations forced McDonald’s to take drastic steps: the fast food giant actually removed McNuggets from its Hong Kong menu back in July.
On top of that, global sales at McDonald’s fell 3.7%. in August, so it isn’t just Asia that’s losing its taste in the fast-food giant.
All things considered, McDonald’s remained the fourth-highest-paying Dow dividend stock going into October after the stock price rebounded. Oh, McDonald’s also raised its quarterly dividend by 4 cents, or nearly 5%, on Sep. 18. The new and improved $0.85 quarterly dividend will be paid to investors on record as of Dec. 1.
In the longer-term, it’s important for Mickey D’s to get its groove back and reignite same-store sales, because dividend hikes can’t go on forever in the wake of essentially flat revenue and a brand in the crosshairs.
Top Dividend Stock #3: Chevron (CVX)
Dividend Yield: 3.55%
YTD Performance: -3.71%
52-Week Return: -1.00%
Just last month, Chevron (CVX) was merely the sixth-best dividend stock in the Dow. Although the $227 billion oil and gas giant did boost its dividend by 7% back in April, the reason Chevron’s dividend yield shot higher in September had nothing to do with a change in the dividend.
It was Chevron’s diving stock that did the trick: CVX shares lost 6.88% in the last month alone. Much of the losses can be attributed to slumping crude oil prices, which have fallen from over $103 a barrel in June to around $94 a barrel today. While Chevron’s exposure to both upstream and downstream operations should insulate the stock from too much exposure to oil’s volatility, that’s not how it works in practice.
Two prominent investment banks downgraded CVX stock in September. Bank of America analyst Doug Leggate downgraded Chevron stock on Sept. 9 to “underperform” from “neutral.” Leggate asserted that Chevron’s free cash flow will take a hit every day that crude oil trades below $100 a barrel. Two weeks later, JPMorgan initiated coverage of Chevron stock, giving it a ho-hum “neutral” rating.
One would think that the decision to go after ISIS would create more turmoil in the Middle East and send energy prices higher, but a combination of factors — a weak European economy, concerns about Chinese demand, and a strong dollar, to name a few — have kept oil prices in check in recent months. That’s generally not good news for Chevron stock, but it serves to boost the dividend yield.
Top Dividend Stock #2: Verizon (VZ)
Dividend Yield: 4.42%
YTD Performance: -3.49%
52-Week Return: -1.70%
The top two dividend stocks in the Dow are absolutely in a league of their own. Verizon (VZ) remains the second-best blue-chip stock when it comes to dividend yield, shelling out a mighty respectable 4.42% to its shareholders. After paying a $0.53 quarterly dividend for a full year, Verizon raised its dividend on Sept. 4 by 3.8% to a $0.55 quarterly rate. Shareholders on record as of Oct. 10 will be the first to receive their $0.55 payout when the checks go out on Nov. 3.
According to a Bloomberg report last week, Verizon is considering selling a portion of its cell towers to raise money for its operations. Specifically, Verizon wants to raise around $6 billion in order to finance the purchase of wireless spectrum. Deals like this aren’t unprecedented, and have actually become more commonplace in the last year. In fact, Verizon’s following in the footsteps of its fiercest rivals.
Speaking of Verizon’s fiercest rivals, another telecom giant sits atop the list of Dow dividend stocks this month. Can you guess which one?
Top Dividend Stock #1: AT&T (T)
Dividend Yield: 5.22%
YTD Performance: +0.2%
52-Week Return: +3.68%
Surprise surprise! Telecom powerhouse AT&T (T) pays the highest dividend in the Dow yet again this month, rewarding investors to the tune of 5.22%. While AT&T hasn’t adjusted its dividend this year, if the past is any indication then Ma Bell will be modestly increasing its dividend come February, a practice it has done religiously over the last decade.
AT&T probably won’t be selling off any more of its cell towers, especially after last year’s sale, in which the company raised $4.83 billion by selling the rights to 9,100 towers for an average of nearly 30 years apiece, according to Bloomberg.
In the light of the massive iPhone 6 and iPhone 6 Plus launch in September, both AT&T and Verizon should be able to lock down a ton of renewed contracts in the quarter. And unless something drastic happens in October, expect AT&T and Verizon to repeat as the top two Dow dividend stocks next month.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income, which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and up to 4x greater income.